LO1 26. Calculating Annuity Present Values Beginning three months from now, you want to be able to withdraw $2,500 each quarter from your bank account to cover college expenses over the next 4 years. If the account pays.47 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next 4 years? Page 158 x Chapter 5 Question 26 Input area: $ Quarterly withdrawal # of years Interest rate per quarter 2,500 4 0.47% Output area: Amount needed today Chapter 5 Question 35 Input area: Amount per month in option 1 $ 6,100 $ Amount per month in option 2 Signing bonus in option 2 5,100 25,000 APR 7% Output area: Monthly interest rate Present value of option 1 Present value of option 2 II TO Diffference in PV Future value of option 1 Future value of option 2 Difference in FV Chapter 5 Question 58 Input area: $ $ Salary for 2 years ago Last year's salary Future salary Years for future salary Pain and suffering Court costs EAR 44,000 47,000 51,000 5 200,000 25,000 7% $ $ Output area: APR FV of salary 2 years ago Value today of salary 2 years ago Value today of last year's salary Value of next 5 year's salary Total value awarded 11 LO1 58. Calculating Annuity Values You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street-sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury already has decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an Page 162 award to cover the following: (a) The present value of two years' back pay. The plaintiff's annual salary for the last two years would have been $44,000 and $47,000, respectively. (b) The present value of five years' future salary. You assume the salary will be $51,000 per year. (c) $200,000 for pain and suffering. (d) $25,000 for court costs. Assume that the salary payments are equal amounts paid at the end of each month. If the interest rate you choose is an EAR of 7 percent, what is the size of the settlement? If you were the plaintiff, would you like to see a higher or lower interest rate? LO1 35. x Comparing Cash Flow Streams You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $6,100 per month for the next two years, or you can have $5,100 per month for the next two years, along with a $25,000 signing bonus today. If the interest rate is 7 percent compounded monthly, which do you prefer